scholarly journals Public debt dynamics: the interaction with national income and fiscal policy

2021 ◽  
Vol 10 (1) ◽  
Author(s):  
Vasileios Spyrakis ◽  
Stelios Kotsios
Keyword(s):  
Fiscal Policy ◽  
Public Debt ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
National Income ◽  
Equation System ◽  
Policy Implications ◽  
Debt Dynamics ◽  
The 2008 Financial Crisis ◽  
New Perspective

AbstractThe 2008 financial crisis triggered the debt crisis in Europe. High debt-to-GDP ratios made it impossible for some countries to apply countercyclical policy in order to overcome the recession. As a result, highly indebted countries were forced to apply austerity measures to avoid sovereign default, which deepened even further the decline of their GDP. We examine the case of a highly indebted country, which is not cut off from the financial markets yet, using a bilinear difference equation system. We contemplate the dynamic equations of national income and sovereign debt together, as GDP fluctuations directly affect the debt evolution and we introduce the notion of the second relation, namely the deceleration of private investments due to sovereign debt. We build a new method for the implementation of fiscal policy, a feedback control of the economic system, and we stress its consequent policy implications. We contribute to the existing debt dynamics literature providing a new perspective for the interaction of public debt and GDP. The fiscal policy method we propose vanishes the dilemma between the front-loaded and back-loaded austerity, combines the fiscal recovery from a recession and the fiscal consolidation, as it immediately improves the debt-to-GDP ratio by increasing the national income and restraining the rise of public debt. Finally, we stress why the second relation is important for the implementation of fiscal policy, as its presence leads to a slower and more painful recovery.

Politics, Direct Investment, Public Debt Markets, and the Shadow Economy

2019 ◽  
pp. 683-696
Author(s):  
Friedrich Schneider
Keyword(s):  
Informal Sector ◽  
Political Institutions ◽  
Public Debt ◽  
Sovereign Debt ◽  
Direct Investment ◽  
Shadow Economy ◽  
Debt Crisis ◽  
Policy Implications ◽  
Debt Markets

The chapter first considers the role of politics on the size of the shadow economy and how it is affected by political institutions. Second, it investigates the role of the informal sector on direct investment and public debt markets in the “official” economy. The informal sector has significant adverse effects on credit ratings, lending costs, and investment decisions. This has policy implications, especially in the context of the ongoing sovereign debt crisis, since it suggests that, if politics succeed in reducing the informal sector of financially challenged countries, this is likely to reduce credit risk concerns, cutting down lending costs, and stimulating investment.

scholarly journals The Euro crisis. Causes and Symptoms

2015 ◽  
Vol 16 (32) ◽  
pp. 247-282
Author(s):  
Christoph S. Weber
Keyword(s):  
Fiscal Policy ◽  
Birth Defects ◽  
Current Account ◽  
Public Debt ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Sovereign Debt Crisis ◽  
Euro Crisis ◽  
International Financial Crisis ◽  
A Current

The Euro crisis is mainly a consequence of the international financial crisis of 2008. Thereby, the term Euro crisis is misleading as there is no currency crisis. First, the article shows some of the birth defects of the Euro. Second, it shows that the increase in public debt was caused by rescue measures for banks and anti-cyclical fiscal policy. Third, we argue that the Euro crisis is not just one crisis (a sovereign debt crisis) but it is a combination of several macroeconomic crises including a growth crisis, a labour market crisis, a public debt crisis, and a current account crisis.

scholarly journals Social development and public debt sustainability

2021 ◽  
Vol 14 (2) ◽  
pp. 79
Author(s):  
Chara Vavoura ◽  
Ioannis Vavouras
Keyword(s):  
Fiscal Policy ◽  
Social Development ◽  
Public Debt ◽  
Debt Crisis ◽  
Necessary Condition ◽  
Debt Sustainability ◽  
Long Run ◽  
Policy Measures ◽  
Of Greece

The issue of public debt sustainability is of exceptional importance in the case of Greece. As a rule, the relevant analysis is limited to the examination of the fiscal policy measures reported to contribute to reducing public debt leaving out the investigation of the factors that caused the country’s debt crisis. The objective of the present paper is to explore the determinants of Greece’s debt crisis and the strategy required to address it. Our work highlights the issue of social development, which is found to be a necessary condition for ensuring the long run sustainability of the country’s public debt.

ASSESSING THE RISKS TO THE JAPANESE GOVERNMENT BOND MARKET

2013 ◽  
Vol 04 (01) ◽  
pp. 1350002 ◽  
Author(s):  
WAIKEI RAPHAEL LAM ◽  
KIICHI TOKUOKA
Keyword(s):  
Public Debt ◽  
Financial Distress ◽  
Financial Stability ◽  
Debt Crisis ◽  
Japanese Government ◽  
Government Bond ◽  
Bond Yields ◽  
Market Capacity ◽  
Debt Dynamics ◽  
The Government

Despite the rise in public debt, Japanese Government Bond (JGB) yields have remained low and stable, supported by steady inflows from household and corporate sectors, high domestic ownership of JGBs, and safe-haven flows in light of ongoing European debt crisis. Nonetheless, the market capacity to absorb new government debt will likely decline over time as the population ages, posing risks for the JGB market. This paper examines the key risks of the JGB market, including a decline of private sector savings and potential spillovers from global financial distress, which could push up the government bond yields. A sharp rise in interest rate could pose challenges on public debt dynamics and financial stability in Japan. In that regard, more ambitious fiscal reforms to reduce public debt will help limit these risks.

Fiscal Policy, Public Debt and the World Crisis

2014 ◽  
Vol 15 (2) ◽  
pp. 225-242 ◽  
Author(s):  
Gauti B. Eggertsson
Keyword(s):  
Fiscal Policy ◽  
Public Debt ◽  
Dynamic Stochastic General Equilibrium ◽  
Equilibrium Analysis ◽  
World Crisis ◽  
Debt Dynamics ◽  
World Economic ◽  
Dynamic Stochastic ◽  
World Economic Crisis

AbstractThis study summarizes a theory of the origin of the current world economic crisis and the role of fiscal policy in mitigating its effect. The perspective is dynamic stochastic general equilibrium analysis. Overall, the model analysis suggests a strong case for fiscal policy if the monetary authority is unable/unwilling to close the output gap. This remains the case, even when explicitly taking into account public debt dynamics.

The macroeconomic effects of fiscal consolidation policies in Greece

2017 ◽  
Vol 9 (1) ◽  
pp. 34-49 ◽  
Author(s):  
Stephanos Papadamou ◽  
Trifon Tzivinikos
Keyword(s):  
Fiscal Policy ◽  
Public Debt ◽  
Wage Policy ◽  
Government Consumption ◽  
Content Type ◽  
Indirect Taxes ◽  
Debt Dynamics ◽  
Policy Shocks ◽  
The Government ◽  
A Minor

Purpose This paper aims to investigate the effects of contractionary fiscal policy shocks on major Greek macroeconomic variables within a structural vector autoregression framework while accounting for debt dynamics. Design/methodology/approach The sign restriction approach is applied to identify a linear combination of government spending and government revenue shock simultaneously while accounting for debt dynamics. Additionally, output and unemployment responses to fiscal shocks under different scenarios concerning the amalgamation of austerity measures are considered. Findings The results indicate that a contractionary consumption policy shock, namely, a 1 per cent decrease in government consumption and a 1 per cent increase in indirect taxes, is preferred, as it produces a minor decrease in output and substantially decreases public debt, while a contractionary wage policy shock is suitable only when the government aims to sharply reduce public debt, as the consequences for the economy are harsh. A contractionary investment policy shock is not recommended, as it triggers a rise in unemployment and a fall in output, while the effect on the public debt is minor. Practical implications Policymakers should focus their efforts on reducing unproductive government consumption on the expenditure side. Concerning revenues, the reinforcement of tax administration is recommended to ensure that indirect taxes will be collected. Originality/value This paper contributes to the existing literature by providing a disaggregated analysis of the effects of fiscal policy actions in Greece by implementing several fiscal policy scenarios and accounting for the level of public debt. All scenarios are in the vein of the economic adjustment programs guidelines.

Defence Spending and Sovereign Debt in Greece: A Long-Term Historical Perspective

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Christos Kollias ◽  
Suzanna-Maria Paleologou ◽  
Michel Zouboulakis
Keyword(s):  
Public Debt ◽  
Sovereign Debt ◽  
Empirical Investigation ◽  
Debt Accumulation ◽  
Modern Greek ◽  
Defence Spending ◽  
Debt Dynamics ◽  
The Military ◽  
Of Greece

Abstract The paper sets out to examine the military spending-public debt nexus in the case of Greece. Unlike previous studies that exclusively focus their analyses in the post-WWII period, the empirical investigation conducted herein covers almost the entire two hundred years of the modern Greek state. The estimations using an ARDL framework cover the period 1848–2018 as well as sub-periods therein. To the best of our knowledge, this is the first paper to approach this issue in the case of Greece with such a long-term perspective. In broad terms, the findings do not unearth a statistically traceable effect of defence expenditures on public debt accumulation. The results indicate that this was very much driven by debt dynamics and the need to draw funds to service existing loans. This finding is consistent across both the entire period under scrutiny here as well as the various sub-periods.

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